What is Stock?
The stock comprises completed goods, parts, and materials and everything else you offer to clients—the more store (or things) you sell, the more money your company makes.
Stock control, often known as inventory control, is a method of displaying how much stock you have on hand at any one moment and how you maintain track of it.
Difference between Inventory Optimization and Inventory Management
- Inventory Optimization
Inventory optimization is a process that focuses on identifying inventory levels to fulfil client demands keeping in view the lowest cost by providing expected service with minimum logistic cost. As a result, inventory optimization aims to predict demand as accurately as possible and maximize the company’s financial output from inventory.
- Inventory Management
Inventory Management refers to a systematic process of ordering and tracking stocks as they reach into the organization’s warehouse. The purpose of inventory management is to create high productivity and efficiency targets for all inventory activities. The use of intelligent technologies such as artificial intelligence (AI), machine learning, robotics, and robotic process automation improves the efficiency of warehouses.
How is inventory optimized?
Supply chain inventory optimization is defined as a method of balancing a large number of stock-keeping units (SKUs) with predetermined service-level targets while accounting for all demand and supply fluctuation. It comprises maintaining the right inventory levels to meet your target service levels while minimizing the amount of capital locked up in inventory.
Inventory optimization is also viewed as the next level of inventory management by warehouse and supply chain managers. As a result, companies can achieve holistic Inventory Optimization by taking into consideration both supply and demand changes.
With supply chain inventory optimization, manufacturers can easily solve warehouse management and stocking issues. According to studies, incorrect packing, storing, or securing in freight containers causes roughly 65 percent of inventory damage. To a large extent, inventory optimization can aid in the resolution of these issues.
In 2015, the cost of overstocking items was $470 billion, while under stocking cost more than $600 billion. With accurate Inventory Optimization, manufacturers may leverage predictive analytics and data-driven insights to streamline stocking difficulties.
Below are the factors must be taken into consideration for inventory optimization.
- Demand forecasting accuracy
It is critical for supply chain inventory optimization. Depending on the sort of products or services involved, the product life cycle, and the industry being served, demand and supply chain forecasting can be done in a variety of approaches. Using demand statistics from the preceding year or period, as well as exact request estimations from sales teams, could be one option. Manufacturers must have a thorough understanding of the unique product lifecycle to properly anticipate demand and establish where those SKUs are in the lifecycle. They must also keep track of seasonality patterns and new product launches, both of which can affect demand projection estimates.
2. An Inventory Management Strategy
It’s also critical to understand which products must be delivered, in what amounts, and at what intervals. Because it divides SKUs based on their annual consumption value, ABC analysis is an excellent technique for stocking SKU amounts. It also helps you understand safety stock calculations so you can manage with unanticipated demand changes, supplier variances, or other disruptions. Finally, you must assess the number of warehouses you have in order to deliver your product in the appropriate quantities at the appropriate times and locations throughout your locations.
4. Supplier Evaluation
This phase is crucial for identifying which quantities and when they need to be reordered, as well as making the order. Manufacturers must evaluate supplier reliability because each supplier has its own lead time and production cycle. Additionally, manufacturers must keep track of all goods in transit, not just those in stock at the warehouse. While this may seem self-evident, most ERP systems make gathering this information challenging.
Obstacles in Inventory Optimization Process
Sales forecasting is tough to achieve efficiently with altering demand cycles, thus this is a top concern. The accuracy of the sales prediction and the accuracy of the inventory levels are inextricably linked.
- Outdated Management of Inventory
Traditional inventory management systems are incompatible with modern e-commerce strategies for the most part. When volume sales and bulk shipments get more complicated, traditional inventory management becomes more difficult.
- Multi-Channel Fulfilment challenge
There are a lot of sophisticated aspects that effect sales velocity with today’s multi-channel order fulfilment systems. Given that online and offline shop channels operate differently and have different KPI targets, creating ideal inventory levels to meet all of this could be a challenge.
- Dead stock
Things that can’t be sold because they’re irrelevant, out of style, or no longer useful might sabotage inventory optimization efforts. Keeping dead stock for long periods of time (usually more than a year) can add to the dead weight and have an impact on future purchases of similar items, making inventory management more difficult.
- Insufficient Automation
Because most merchants and suppliers lack automated and digitized distribution systems, it’s challenging to successfully incorporate analytical, predictive, and AI capabilities. This makes it difficult to make informed decisions on optimal stocking amounts in a timely manner.
- 1: Mechanisms For Monitoring Performance Are Inadequate.
A lack of adequate inventory management and reporting that measures both tangibles and intangibles could stymie inventory optimization initiatives. To avoid inventory worries, product managers should keep an eye on daily fill rates and inventory turnover based on sales cycles.
Best Practices for Inventory Optimization in Small Business
1:Standard Systems for Inventory Reviewing
When it comes to inventory optimization, having the right inventory reviewing system can save you a lot of time and money:
- Continuous Review System: In each cycle, the same amount of items is ordered in a continuous review system. Manufacturers must ensure that inventory levels are regularly monitored and that inventories are restored if the number of an item falls below a predetermined threshold.
- Periodic Review: This strategy is employed when producers order products at the same time each period. At the end of each session, the required items are sorted depending on current quality levels. In this system, there are no predetermined ordering levels.
- Appropriate Quality Control Measures: If you have a precise quality control strategy in place, inventory quality is intimately tied to customer satisfaction and business growth. Manufacturers can begin by constructing checklists that specify all actions to take while collecting product inventory, and then go on to standard operating procedures to qualify or disqualify items. Setting uniform inspection targets can help quality control procedures move more quickly. This inventory optimization best practice can assist avoid overstocking or under stocking because staff will no longer sell clients wrong items.
3: Forecasting Methods That Are Appropriate
To increase the accuracy of future stock estimates, manufacturers use a variety of inventory optimization methodologies to compute ideal stock levels. These tactics are used as checkpoints to avoid overstocking and under stocking. A dynamic blend of historical and predictive forecasting measures is typically utilized to evaluate future inventory needs. Computer-aided multi-model simulation methodologies are widely used to analyse demand data and establish appropriate stock levels. Furthermore, some businesses employ AI-driven data to predict future client needs.
4: Use Just-In-Time Principles (JIT)
In order to meet increased consumer demand for innovative and personalized items over the last two decades, several merchants and manufacturers have redesigned their inventory systems according to JIT principles. These manufacturers achieve JIT and supply chain efficiency in inventory optimization by streamlining their inventory acquisition and delivery operations. This also helps companies eliminate inventory waste by employing a variety of Just-In-Time manufacturing, purchasing, and delivery strategies, as well as removing bottleneck processes that restrict inventory movement via factory operations.
5:An Appropriately Planned Inventory Budget
Many manufacturers develop an annual inventory budget well in advance of inventory buying. The inventory budget should include the total cost of ownership for maintaining inventories on hand during the account period. The budget includes materials costs, fixed operating costs, shipping and logistics costs, redistribution charges, and any other incidental costs that affect the total cost of ownership.
Why Using Inventory Optimization Software for Small business?
The basic goal of inventory optimization is to ensure that the right inventory is available in the right quantity, at the right time, and at the right price. With effective Supply Chain Optimization Software, manufacturers can secure the aforementioned and earn in a variety of ways:
- Gain real-time visibility into inventory levels and order tracking status to increase customer satisfaction and boost performance throughout the sales process.
- Recognize those properly controlling labor requirements and optimizing warehouse inventory levels can reduce operational and inventory costs. This can help a business enhance its performance by allowing it to become more lean and profitable.
- Improve your work’s quality by getting it right the first time. By preventing needless reorders caused by erroneous information about what stock is currently on hand, this increases overall operational excellence and reduces inventory expenditure.
- Boost productivity by analyzing data and reports to better understand product variability and make better strategic and operational decisions.
- Offer competitive prices based on a better understanding of your products to assure the best price or quickest delivery. Manufacturers get a greater understanding of the market and consumer needs, which they utilize to direct organizational design, strategy, and goods and services.